Complaints to the UK Financial Ombudsman Service (FOS) surged by 70% in the last quarter, with motor finance disputes contributing significantly to the increase.
The FOS received nearly 75,000 new complaints in the three months to June, compared to 44,000 during the same period in 2023. Among these, motor finance disputes accounted for approximately 16,000 cases, highlighting growing consumer dissatisfaction in this area.
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Abby Thomas, Chief Executive and Chief Ombudsman of the FOS, expressed concern over the rising volume of complaints, particularly given the ongoing cost-of-living crisis. Established in 2001 to mediate disputes between consumers and financial service firms, the FOS is now facing a wave of challenges, especially in the motor finance sector.
The surge in motor finance complaints comes as regulators scrutinise past lending practices in the industry. Consumers have raised concerns that their car loans were unfairly priced due to Discretionary Commission Arrangements (DCAs) between banks and dealers—a practice banned in 2021. The Financial Conduct Authority (FCA) has urged motor finance firms to brace for potential costs related to its ongoing review of car finance products.
Lloyds Banking Group Plc, the UK’s largest car finance provider, has already set aside £450 million to cover possible compensation and related costs. Close Brothers Group Plc has announced that it will suspend dividend payments for the 2024 financial year to strengthen its balance sheet in light of the ongoing investigation.
Lloyds downgraded by Citi amid motor finance review overhang
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By GlobalDataMotor finance companies advised to prepare for potential customer complaints
In a related development, the FCA is also looking into the sale of pure protection insurance products amid concerns about commission structures and the value of these products. Meanwhile, the Payment Systems Regulator is working to implement a new regime by 7 October to address rising fraud claims.
The FOS, in its statement, encouraged consumers to bring complaints directly to the service, noting that professional representatives (or Claims Management Companies) do not always achieve better outcomes. Only 25% of claims brought by law firms and other representatives were upheld, compared to 40% of cases submitted directly by consumers, it said.
The FOS is also considering introducing a case fee for professional representatives to help cover its rising costs, a move that has drawn criticism from legal professionals who argue it could disadvantage consumers seeking legal assistance.
The ombudsman is funded through a combination of case fees and annual levies from businesses regulated by the FCA. Its operating expenses are projected to increase by 14% to around £252 million in the current fiscal year, according to its latest budget.
